Diversification is the practice of spreading investments across asset classes, sectors, and geographies so that poor performance in one area doesn't devastate your entire portfolio.
How It Works
Different assets react differently to the same economic event. When stocks fall, bonds may rise. By owning both, losses in one are partially offset by gains in the other.
Common Approaches
- Mix of stocks, bonds, and real estate
- Domestic + international exposure
- Large-cap, mid-cap, and small-cap stocks
- Index funds or ETFs for instant diversification